“COOPERATIVA DE
AHORRO Y CRÉDITO
DE RINCÓN”
AUDITED FINANCIAL
STATEMENTS
2016
INDEPENDENT AUDITOR'S REPORT
To: Board of Directors and members of
“Cooperativa de Ahorro y Crédito de Rincón”
Rincón, Puerto Rico
Report on the Financial Statements
I have audited the accompanying balance sheet of “Cooperativa de Ahorro y Crédito de
Rincón” as of June 30, 2016, and the related statements of Income, changes in member’s
equity and cash flows for the year then ended, and the related noted to financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial
statements in accordance with Law 255 amended by Law 220 and in accordance with
accounting principles generally accepted in the United States of America; this includes the
design, implementation, and maintenance of internal control relevant to the preparation and
fair presentation of financial statements that are free from material misstatement, whether
due to fraud or error.
Auditor's Responsibility
My responsibility is to express an opinion on these financial statements based on my audit. I
conducted my audit in accordance with auditing standards generally accepted in the United
States of America. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor's
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error.
In making those risk assessments; the auditor considers internal control relevant to the
entity's preparation and fair presentation of the financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purposes of expressing
opinion on the effectiveness of the entity's internal control. Accordingly, I express no such
opinion.
Page 1
INDEPENDENT AUDITOR'S REPORT (CONTINUATION)
An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as
evaluating the overall presentation of the financial statements. I believe that the audit
evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
Statutory opinion
In my opinion, the financial statements referred to above present fairly in all material
respects, the Financial Position of “Cooperativa de Ahorro y Crédito de Rincón” as of June 30,
2016 and the results of its operations and its cash flows for the year then ended, in
accordance with the regulatory basis of accounting disclosed in note 1 of the Financial
Statements.
Basis for Adverse Opinion in Accordance with Generally Accepted Accounting
Principles in the United States of America.
1. As described in Note 1, the Credit Union prepares its financial statements in accordance
with statutory accounting principles required by COSSEC. These accounting principles
differ in some aspects from generally accepted accounting principles used in United States
of America and Puerto Rico. The main difference is related to the financial presentation of
members’ shares which are included as part of members’ equity. According to generally
accepted accounting principles these shares are similar to deposit accounts, therefore,
their presentation must be included as part of the Credit Union’s liabilities. If members’
shares were presented in accordance with United States generally accepted accounting
principles, total liabilities would have increased and members’ equity would have
decreased by $223,157,944 as of June 30, 2016. The statement of income and expenses
would include dividends credited to members for $7,500,000 as interest expense in the
fiscal year ended June 30, 2016.
2. As describe in note 1, on December 15, 2015 the State Credit Union Law was amended to
provide a different accounting treatment to the Puerto Rico bonds. This Law requires that
Puerto Rico Bonds be classified as “Special Investments” and segregated from the other
investments. In case of an impairment, the Credit Union can recognize the losses within a
fifteen-year time frame. Management hired an expert to perform an impairment analysis
since is required by Law and by the accounting principles. Investments made by the
Credit Union amounted to $57,095,000 as of June 30, 2016. The analysis performed
shows that an impairment of $11,085,025 was determined at year end. If Management
would have recorded the impairment as of June 30, 2016 based on GAAP requirements
the Income statement would have presented a devaluation by $11,085,025 with a net loss
instead of a net income. Also, Total Assets and Members’ Equity would have decreased by
the same amount and the loss would not be included as part of investments.
Adverse Opinion
In my opinion, because of the significance of the matters discussed in the previous
paragraphs, the accompanying financial statements do not present fairly the financial position
of the “Cooperativa de Ahorro y Crédito de Rincón” as of June 30, 2016, the results of their
operations and cash flows in accordance with Generally Accepted Accounting Principles in the
United States of America.
Page 2
INDEPENDENT AUDITOR'S REPORT (CONTINUATION)
Emphasis of a matter – Negotiable investments
As described in note 15, during February 2014 and subsequently the credit rating agencies
downgraded Puerto Rico bonds, its agencies and Public Corporations to high risk levels. As of
June 30, 2016 the Credit Union has $57,095,000 invested in Puerto Rico bonds (see note 4).
Management hired an expert to evaluate the Puerto Rico bonds portfolio and to determine a
probable impairment by using its best estimate of the present value of cash flows expected to
be collected from these debt securities. After the expert outlined the factors that should be
considered when determining whether a security is other than temporarily impaired, the final
conclusion is that an impairment amounting to $11,085,025 must be recognized and included
as a loss during the current fiscal period ended on June 30, 2016. The effect of this
impairment is significant to the financial statements. However, management expects to see
in the future corrective measures applied by the Puerto Rico and/or United States of America
government to mitigate future losses. If debt restructure takes place, the amount recognized
as impairment might be different in the future and estimates might have to be adjusted in
the financial statements. The members’ equity remains positive and this loss does not affect
the Credit Union’s financial stability or liquidity.
In accordance with the Generally Accepted Accounting Principles in the United States of
America, any devaluation is considered permanent in the same period in which the reduction
is determined. Management classified this devaluation as established by Law 220 of
December 15, 2015 and decided to amortize it within a maximum period of fifteen years.
Other matter – Financial statements as of Jun 30, 2015
The Financial Statements as of June 30, 2015 were audited by another Certified Public
Accountant, who expressed a qualified opinion, dated on August 27, 2015 because the Credit
Union presented members’ shares and related dividends as established by the Public
Corporation for the Supervision and Insurance of Puerto Rico Credit Unions (known as
“COSSEC” its Spanish acronym) and not in accordance with United States generally accepted
accounting principles.
Those financial statements are presented to provide additional
information and do not include requirements or the effects of Law 220 of December 15, 2015
related to negotiable investments.
Benjamín Rosario Rosario, CPA
License 4727
Expires on December 1, 2017
Stamp No. E250424 was affixed
to the original of this report
Gurabo, Puerto Rico
September 19, 2016
Page 3
"COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN"
STATEMENTS OF FINANCIAL CONDITION
JUNE 30,
2016
2015
ASSETS
Cash and cash Equivalents (See notes 1 & 2)
Certificates of deposits with due dates over three months (See note 3)
$36,276,877
$59,087,490
72,661,294
87,810,294
117,259,000
202,834,839
Negotiable Investments (See notes 1 & 4)
Held to Maturity Investments
Special Investments
57,095,000
Loans receivables net of allowance for doubtful accounts (See notes 1 & 5)
-
265,897,052
260,434,554
Interest and other accounts receivable (See note 6)
2,519,737
3,073,314
Property and Equipment net of accumulated depreciation (See notes 1 & 7)
6,594,043
5,663,487
Other Cooperative entities (See note 8)
9,314,698
9,108,747
Other assets (See note 9)
5,035,795
5,792,934
$572,653,496
$633,805,659
$154,288,717
$161,819,423
3,505,685
4,616,565
149,680,286
176,872,226
1,985,057
1,398,133
309,459,745
344,706,347
2,551,101
2,116,158
$312,010,846
$346,822,505
223,157,944
249,805,535
Total Assets
LIABILITIES AND MEMBERS' EQUITY
Liabilities
Members and nonmembers' deposits (See notes 1 & 10)
Savings accounts
Christmas and Summer club
Certificates of deposits
Checking accounts
Accounts payable and accrued expenses (See note 11)
Total Liabilities
Members' Equity
Members' Shares
Accumulated earnings (Deficit)
Statutory reserve (Appropriated) (See note 1)
Other reserves
Total Members' Equity
Total Liabilities and Members' Equity
See accompanying notes to financial statements
Page 4
5,817,766
7,500,000
26,527,821
26,137,451
5,139,119
3,540,168
$260,642,650
$286,983,154
$572,653,496
$633,805,659
"COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN"
STATEMENTS OF INCOME AND EXPENSES
YEARS ENDED ON JUNE 30,
2016
2015
Interest
Income from Loans
$18,325,744
$18,633,391
8,597,737
9,405,868
26,923,481
28,039,259
Savings and Certificates
(3,937,882)
(4,614,700)
Net Interest Income
22,985,599
23,424,559
Less Provision for loan losses
(4,302,246)
(4,506,485)
Net interest income after provision for Loan Losses
18,683,353
18,918,074
1,246,977
1,212,013
19,930,330
20,130,087
3,937,315
3,697,523
Professional Services
538,611
465,030
Publicity and Representation expenses
480,635
399,221
Education expenses
263,596
261,687
Depreciation and Amortization
491,664
404,655
Repairs and Maintenance
482,329
268,171
Printing and office supplies
222,276
216,263
Insurance
1,395,424
1,329,203
Cossec - Insurance premium
1,461,001
1,425,029
Annual meeting
176,835
198,647
Credit expenses
37,036
39,648
2,636,211
2,051,260
12,122,933
10,756,337
Net Income before loss from impairment of investments
$7,807,397
$9,373,750
Net Income
$7,807,397
$9,373,750
Income from Investments and savings accounts
Total
Interest Expenses
Other Income (See note 12)
Net Income before General and Administrative Expenses
General and Administrative expenses
Compensation and Fringe Benefits (See note 13)
Other administrative expenses (See note 14)
Total General and Administrative Expenses
See accompanying notes to financial statements
Page 5
"COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN"
STATEMENTS OF MEMBERS' EQUITY
YEARS ENDED ON JUNE 30, 2016 AND 2015
Reserve
Accumulated Statutory
Member's
Shares
Balance as of June 30, 2014
Earnings
Technological for Technological
Temporary
Reserve Social Capital Development Development and Statutory Reserve
(Deficit) (Appropriated) Reserve
$235,598,920 $8,700,000 $24,263,701
-
Reserve
Contingencies (Appropriated)
$1,500,000
$2,000,000
Total
-
$272,062,621
Members' investments
48,674,280
-
-
-
-
-
-
48,674,280
Members' withdrawals
(43,167,665)
-
-
-
-
-
-
(43,167,665)
-
-
-
-
-
-
-
-
-
40,168
-
-
Dividends
8,700,000
(8,700,000)
Dormant accounts' transfers
-
-
-
40,168
Transfer to voluntary reserve
-
-
-
-
Transfer to Statutory Reserve (Appropriated)
-
(1,873,750)
Net Income
-
9,373,750
Balance as of June 30, 2015
1,873,750
-
$249,805,535 $7,500,000 $26,137,451
(1,500,000)
1,500,000
-
-
-
-
-
-
-
-
9,373,750
-
$286,983,154
$40,168
-
$3,500,000
Members' investments
$38,770,895
-
-
-
-
-
-
38,770,895
Members' withdrawals
(72,918,486)
-
-
-
-
-
-
(72,918,486)
-
-
-
-
-
-
-
(310)
-
-
-
(310)
Dividends
7,500,000
(7,500,000)
Dormant accounts' transfers
-
Transfer to Temporary Reserve
-
(1,599,261)
-
-
-
Transfer to Statutory Reserve (Appropriated)
-
(390,370)
390,370
-
-
-
-
Net Loss
-
7,807,397
-
-
-
-
-
-
-
Balance as of June 30, 2016
-
$223,157,944 $5,817,766 $26,527,821
See accompanying notes to financial statements
Page 6
$39,858
(3,500,000)
5,099,261
$5,099,261
7,807,397
$260,642,650
"COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN"
STATEMENTS OF CASH FLOWS
YEARS ENDED ON JUNE 30,
2016
2015
Cash flows from operating activities
Net Income (Loss)
$7,807,397
$9,373,750
491,664
404,655
4,302,246
4,506,485
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and Amortization
Provision for Loan Losses
Capitalized dividends
(210,951)
Loss on disposition of foreclosed assets
1,232,192
(217,178)
747,360
Net gain on assets disposal
(68,120)
Net Decrease (Increase) in other assets and account receivables
151,644
(1,629,386)
Increase (Decrease) in accounts payable and accrued expenses
434,944
(54,707)
Total Adjustments
Net cash provided by operating activities
(114,993)
6,333,619
3,642,236
14,141,016
13,015,986
Cash flows from investing activities
Equipment Purchases
(1,422,220)
(2,022,939)
Increase in Loan receivables
(9,764,744)
(2,756,953)
Cash proceeds from return on principal over investments
28,480,839
Decrease (increase) in other cooperative entities
Decrease (increase) on Certificates
Net cash flows Provided (Used) by investing activities
-
5,395,590
(223,183)
15,149,000
(13,875,130)
$32,442,875
($13,482,615)
Cash flows from financing activities
(Decrease) Increase on Members and nonmembers' Deposits
Dormant accounts' transfers
(35,246,603)
(310)
1,909,987
-
Member's Investments
38,770,895
48,674,280
Members' withdrawals
(72,918,486)
(43,167,665)
Net cash flows (Used) Provided by financing activities
Net (Decrease) Increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
See accompanying notes to financial statements
Page 7
($69,394,504)
(22,810,613)
$7,416,602
6,949,973
59,087,490
52,137,517
$36,276,877
$59,087,490
"COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN"
STATEMENTS OF CASH FLOWS (CONTINUATION)
2016
YEARS ENDED ON JUNE 30,
2015
Supplemental Disclosure of Cash Flows Information:
Noncash transactions:
Cash Paid during the year for interest
$3,868,561
$4,659,074
Capitalized dividends
$7,500,000
$8,700,000
($4,902,183)
($3,928,868)
Loan Charge offs
$949,561
Increase on foreclosed assets
-
Dormant accounts' transfers
$390,370
Transfer to Statutory Reserve (Appropriated)
Transfer to Temporary Statutory Reserve (Appropriated)
See accompanying notes to financial statements
Page 8
$5,099,261
$2,204,734
$40,168
$1,873,750
-
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
Note 1:
NATURE OF BUSINESS, REGULATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING
POLICIES
IN
ACCORDANCE
WITH
GENERALLY
ACCEPTED
ACCOUNTING PRINCIPLES
NATURE OF BUSINESS
“Cooperativa de Ahorro y Crédito de Rincón” is a cooperative association created in
accordance with the provisions of Law 255 issued in October 28, 2002 and its operations are
principally related to holding deposits for and making loans to any person who wishes to
become a member.
REGULATION
Public Corporation for the Supervision and Insurance of Puerto Rico Credit Unions
(known as “COSSEC” its Spanish acronym)
Law 114 issued in august 17, 2001 known as “Ley de la Corporación Pública para la
Supervisión y Seguro de Cooperativas de Puerto Rico” created a Public Corporation which
regulates and provides guidance on how Puerto Rico Credit Union must manage members’
deposits in order to maintain adequate internal controls and to provide excellent services to
the general public. Also, the Credit Union follows a bylaw known as “Reglamento 7051”
which specifies the provisions of Law 255 issued in October 28, 2002.
The Public Corporation (“COSSEC”) provides an insurance up to two hundred fifty thousand
($250,000) for deposits made by members in accordance with Law 114 issued in 2001. Each
Credit Union must maintain a deposit equal one percent (1%) of total members’ shares and
deposits as of June 30, of every year. “COSSEC” will decide the applicable policies and
procedures regarding an increase in the annual contribution for the shares and deposits
insurance.
Credit Unions are required to pay an annual insurance premium to COSSEC depending on
risks and rates approved by the Regulating Agency Board of Directors. Rates are based on
actuarial projections.
Dormant accounts
Article 6.09 of Law 255 establishes that unclaimed deposits for a five-year period will be
transfer to an unrestricted reserve used for social services or to the statutory reserve, at
management’s option. These deposits do not include members’ shares and the transfers can
be made as long as it is within the law requirements. The Credit Union must notify members
that dormant accounts will be transferred according to the law. The announcement must be
made within the Cooperative’s facilities and through a Puerto Rico newspaper. The Credit
Union is required to inform COSSEC the deposits to be transferred.
After transference has been made, members will have another five-year period to withdraw
the deposits or to lose it completely. The Cooperative is authorized to charge members the
costs for newspaper notifications and other related costs to these dormant accounts.
Page 9
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
Tax exemption
The Credit Unions’ and its subsidiaries are exempt from any kind of tax, which includes
income, property, county and excise taxes. Also, no payment is required for permits,
registration documents and any other services received from any of the governmental
instrumentalities.
Law Amendments
Article 6.08 of Law 255 was amended by law #40 issued on June 30, 2013, which establishes
that Credit Unions will not pay any kind of taxes, except sales and use taxes according to
sections 4020.01, 4020.02 and 6080.14 of the Puerto Rico Tax Code. Also, Cooperatives will
pay excise taxes in accordance with chapter 2, subtitle C of the Puerto Rico Tax Code.
Contribution to “Liga de Cooperativas”
Article 6.10 of Law 255 establishes that every Credit Union is required to pay no less than
one tenth of one percent (.1%) from its Gross Revenues up to a maximum of $4,000 for
Educational and other purposes regarding the Cooperative movement in Puerto Rico. In
case, a Cooperative’s Gross Revenues exceeds four million dollars an additional contribution
of 5% of net income up to a maximum of $6,000 will be made to the organization known as
“Liga de Cooperativas”.
Surplus
Every Cooperative, with prior recommendation of its Board of Directors, will distribute to its
members any accumulated surplus and the Cooperative might need the authorization of
“COSSEC”. Dividends can be paid to members after making required contributions of
earnings to other statutory reserves and/or any other voluntary appropriations decided by
the Board of Directors based on future plans. Dividends are paid by an increase on members’
shares, not by cash, and are based on average share balance and sponsorship.
Page 10
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
Statutory Reserve
Law No. 255, Article 6.02, establishes that Credit Unions are required by regulation to
maintain a statutory reserve. This reserve, which represents a regulatory restriction of
retained earnings, is not available for the payment of dividends.
Starting January 1, 2011 all Credit Unions must maintain a minimum statutory reserve of
eight percent (8%) of total risky assets as defined by law 255. Failure to meet minimum
requirements can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the Credit Union’s
financial statements. Failure to meet minimum capital requirements would require the Credit
Union to submit a plan of action to correct the shortfall.
Any Credit Union with less than 8% of risky assets, as defined by law, is required to transfer
25% of Net Income until it reaches the minimum capital requirement. Any Credit Union with
more than 8% regarding the statutory reserve is required to transfer only 5% of net income.
In order to calculate the amount of statutory reserve needed as part of the already
mentioned required 8%, the following items are taken into consideration:
1. Appropriations from statutory reserves required by law 6 issued in 1990.
2. Any other voluntary reserve created by the Credit Union, except amounts recorded
as part of market value fluctuations regarding negotiable investments classified as
available for sale.
3. Fifteen percent (15%) of undistributed earnings.
4. The amount recognized in the allowance for doubtful accounts, as probable losses
on nondelinquent loan receivables.
5. Capital obligations issued by the Credit Union and any other financial instruments
authorized by COSSEC.
6. Other items approved by COSSEC.
Based on Regulation, the Cooperative must disclose to members the calculation regarding the
required 8% according to Law 255.
The computation to determine compliance with the require percentage of the statutory
reserve is based on statutory requirements and the amounts presented are not required by
United States Generally Accepted Principles (GAAP). The amounts to determine compliance
with statutory requirements is disclosed as follows:
Page 11
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
Elements of Statutory Reserve (Based on statutory requirements
not required by United States Generally Accepted Accounting
Principles (GAAP))
2016
2015
$26,527,821
$26,137,451
872,665
1,125,000
Other voluntary reserves
5,099,261
3,500,000
Amount reserved for nondelinquent loans
1,647,492
2,691,000
$34,147,239
$33,453,451
$572,653,496
$633,805,659
7,667,298
7,830,000
$580,320,794
$641,635,659
(1,100,390)
(1,106,440)
100% of loan balances fully guaranteed, unconditionally, by the Puerto
Rico Government or its agencies or by the United States Government or
its agencies.
(109,917,046)
(107,352,355)
100% of loan balances fully guaranteed by members' shares that are
being withheld by the Credit Union and cannot be withdrawn until loan
balances are paid off.
(43,086,384)
(42,602,628)
100% of the amount invested in the Public Corporation for the
Supervision and Insurance of Puerto Rico Credit Unions (known as
“COSSEC” its Spanish acronym)
(6,313,055)
(6,140,507)
Statutory reserve (Appropriated)
Accumulated earnings (Based on statutory requirements not GAAP)
Total statutory reserve
(A)
ASSETS - ELEMENTS OF RISK
Total Assets (Based on statutory requirements not GAAP)
plus provision for loan losses
Total adjusted assets
Less:
Assets with no risk (0%) as defined by Law 255
100% of change fund received and in transit
Page 12
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
Assets with 20% risk as defined by Law 255
(14,020,957)
(46,384,840)
80% Interest receivable from on demand deposits accounts and
investments
(1,988,245)
(2,299,088)
80% of loans to non-members fully guaranteed by liquid assets, which
remain as guarantee of the loan as provided in Article 2.03 (a)(2).
(8,191,812)
(8,087,126)
80% of debt instruments issued and guaranteed by the Puerto Rico
Government or its agencies or by the United States Government or its
agencies. These debt instruments are not explicitly and unconditionally
guaranteed by the Puerto Rico or United States government, including
the following entities: Federal Home Loan Mortgage Corporacion
(FHLMC), Federal National Mortgage Association (FNMA), Farm Credit
System, Federal Home Loan Bank System, and Student Loan Marketing
Association.
(139,483,200)
(162,267,871)
80% of on demand deposits, loan balances, debt instruments issued and
secured or guaranteed by any of Puerto Rico or United States financial
institutions, including "Banco Cooperativo". Shares issued by regular for
profit corporations are excluded from these amounts.
(76,608,235)
(70,248,236)
80% of acquisition cost of real property or appraisal value based on an
appraisal report issued by a qualified professional, whichever is lower.
These real properties must be used or in process to be used as an office
facility, branch, service center, parking or any other necessary facilities.
The amounts to be included must be presented net of any related debt,
directly secured by the real property owned by the Cooperative.
(4,056,373)
(3,624,937)
(56,878)
(77,988)
(625,794)
(595,071)
80% of on demand deposits
80% of prepaid insurance related to the Credit Union's risks
80% of common or preferred stock invested in other Cooperative entities
known as "Banco Cooperativo", "Cooperativa de Seguros Múltiples" and
"Cooperativa de Seguros de Vida. This amount is included as long as the
investment maintains its par value, according to the financial statements
and are redeemable.
Page 13
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
Assets with 50% risk as defined by Law 255
50% of loan balances fully guaranteed by residential properties acquired
through first mortgages and used as a principal residence by any family.
These loans do not have to qualify to be sold in the secondary mortgage
markets but cannot be delinquent.
(5,184,145)
(3,412,498)
50% of loan balances fully guaranteed by Commercial properties. These
loans do not have to qualify to be sold in the secondary mortgage
markets but cannot be delinquent.
(1,572,049)
(1,846,257)
50% of total investment in other Cooperative entities knows as "Liga de
Cooperativas", "Cooperativa de Servicios Fúnebres" and "Fondo de
Inversión y Desarrollo Cooperativo".
(642,545)
(642,545)
$167,473,685
$184,947,272
20.39%
18.09%
Total assets at risk
(B)
Percentage of Statutory Reserve to total statutory assets as risk (A/B)
Restricted Cash – Minimum requirements for liquidity
Law No. 255, Article 6.07, establishes that Credit Unions are required by regulation to
maintain a statutory liquidity. In order to maintain the minimum requirements for Restricted
Cash, law 255 specifies the amounts that must be reserved for liquidity purposes. The
requirements and details are disclosed as follows:
1. Thirty-five percent (35%) of the Statutory Reserve must be maintained in liquid
assets.
2. Fifteen percent (15%) of total deposits and savings on demand will be maintained
in liquid funds.
3. Fifteen percent (15%) of total certificates of deposits; excluding those certificates
with maturity within 30 days, in which case, twenty-five percent will be maintained.
Certificates of deposits that serve as collateral for loans will not be taken into
consideration.
4. The Credit Union must accumulate, on a monthly basis, 8.33% of total Christmas
and Summer club and any other savings reserved for special events. The 8.33%
accumulation ends, when it reaches 100% of total Christmas and Summer club.
5. Fifteen percent of any other financial instrument not included previously.
Information regarding available funds and statutory liquidity (restricted cash) is disclosed as
follows:
Page 14
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
Description
Available funds
Cash, checking and savings accounts
Certificates of deposit
Negotiable investments
Accrued interest
Cross pledged investments and savings
Total available funds
Statutory liquidity
35% of statutory reserve
15% of on demand deposits net of
Cross-investments and pledged deposits
25% of certificates due within 30 days
Accumulated christmas and summer deposits
Total statutory liquidity
Excess
2016
2015
$36,276,877
72,661,294
144,968,216
2,485,306
(3,050,000)
$253,341,693
$59,087,490
81,960,295
173,374,233
2,873,860
$317,295,878
9,284,737
9,148,108
41,509,772
3,580,278
2,099,700
$56,474,487
46,486,871
3,554,599
2,805,872
$61,995,450
$196,867,206
$255,300,428
Statutory accounting principles
The Credit Union prepares its financial statements in accordance with statutory accounting
principles required by COSSEC. These accounting principles differ in some aspects from
generally accepted accounting principles used in United States of America and Puerto Rico.
The main difference is related to the financial presentation of members’ shares which are
included as part of members’ equity. In addition, Law 220 establish a difference accounting
treatment for the negotiable investments.
Special Investments Law
The Law 220 of December 15, 2015, amended the Law 255 of October 28, 2002, to provide a
different accounting treatment from the requirements by the Generally Accepted Accounting
Principles in the United States of America. The Credit Union Management, adopt the
accounting principles established by the Law 220. Below are the requirements of the law:
1) Classification of investments in debt instruments issued by the Commonwealth of
Puerto Rico, its agencies and public corporations as "Special Investments".
2) Recording of Special investments in the Credit Union accounting at its amortized
cost regardless of their classification in the financial statements. Amortized cost is
defined as the amount paid for the investment, plus the amount of incidental
costs in the acquisition. In addition, there will be no unrealized losses related to
Special Investments.
Page 15
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
3) Any loss related to Special investments may be amortized over a period not
exceeding 15 years. The amortization period will be defined by the Board of
Directors of each Credit Union, with the recommendations of the Executive
President, the financial and investment advisers of the Institution, as long as
those consultants are part of any sale or settlement on the Special Investments.
4) Disclosure in the notes of the financial statements about the market value of
these investments and the method in which the Credit Union will apply Law 220 to
the "Special Investments".
5) The Board of Directors of each Credit Union that possess Special Investments,
shall designate a Special Investments Committee including three (3) members of
the Board of Directors, the Executive President and another managerial employee
selected by the Executive President. The Special Investments Committee will be
responsible for monitoring the performance and values of Special Investments,
considering the market condition of these financial instruments.
6) Creation of a Temporary Statutory Reserve of ten percent (10%) of the unrealized
losses of the Special Investments, plus additional contributions based on other
statutory requirements.
7) COSSEC shall not impose sanctions or penalties to any Credit Union, member of
any board, managerial officers, or employees due to the decision of approving
these Special Investments.
Disclosure requirements by Law 220
The investment portfolio of the Credit Union includes a material amount of instruments issued
by the Government of the Commonwealth of Puerto Rico and its instrumentalities. At the date
of these financial statements, the market value of these investments is $24,644,953.
In order to meet these circumstances, the Puerto Rico Public COSSEC has adopted a special
rule that requires the Credit Unions to report the bonds of the Government of the
Commonwealth of Puerto Rico and its instrumentalities in a uniform manner as Held to
Maturity Investments and in case of a loss in these investments, it may be amortized over a
period of up to fifteen (15) years. The Credit Union has a devaluation of $11,085,025 on its
investments as a result of an analysis performed by an expert.
The Credit Union will have to establish a Special Investment Committee, as established in
Law 255 that will supervise and evaluate on a continuous basis, the portfolio of bonds of the
Commonwealth of Puerto Rico. In addition, it will make an additional contribution to the
capital structure of the Credit Union.
The following is a statement of the situation that includes the differences between the items
as required by the General Accounting Principles of the United States of America and the
items as required by Statutory Accounting.
Page 16
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
JUNE 30,2016
"US GAAP"
Change
Statutory
ASSETS
Cash, savings accounts and certificate of deposits
$108,938,171
-
$108,938,171
Negotiable Investments:
Held to Maturity Investments
163,268,975
Special Investments
-
(46,009,975)
117,259,000
57,095,000
57,095,000
Loans receivables net of allowance for doubtful accounts
265,897,052
-
265,897,052
Property and Equipment net of accumulated depreciation
6,594,043
-
6,594,043
Other Cooperative entities
9,314,698
-
9,314,698
Accumulated interest, account receivables and other assets
7,555,532
-
7,555,532
Total Assets
$561,568,471
$11,085,025 $572,653,496
LIABILITIES AND MEMBERS' EQUITY
Liabilities
Members and non-member deposits
$532,617,688
Accounts payable and accrued expenses (See note 11)
2,551,102
Total Liabilities
($223,157,944)
-
$309,459,744
2,551,102
$535,168,790 ($223,157,944) $312,010,846
Members' Equity
Members' Shares
-
$223,157,944
223,157,944
Accumulated earnings (Deficit)
(3,277,628)
9,095,394
5,817,766
Other Reserves
3,539,858
1,599,261
5,139,119
26,137,451
390,370
26,527,821
Statutory Reserve
Total Members' Equity
Total Liabilities and Members' Equity
Page 17
$26,399,681
$234,242,969 $260,642,650
$561,568,471
$11,085,025 $572,653,496
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
The following is an income statement that includes the differences between the items as
required by the General Accounting Principles of the United States of America and the items
as required by Statutory Accounting.
FOR THE YEAR ENDED ON JUNE 30, 2016
"US GAAP"
Change
Statutory
$18,325,744
-
$18,325,744
8,597,737
-
8,597,737
26,923,481
-
26,923,481
Interest
Income from Loans
Income from Investments and savings accounts
Total
Interest Expenses
Savings and Certificates
(11,437,882)
7,500,000
(3,937,882)
Net Interest Income
15,485,599
7,500,000
22,985,599
Less Provision for loan losses
(4,302,246)
Net interest income after provision for Loan Losses
11,183,353
Other Income (See note 12)
1,246,977
Net Income before General and Administrative Expenses
12,430,330
General and Administrative Expenses
12,122,933
Investments devaluation
11,085,025
Net Income (Loss)
($10,777,628)
Page 18
7,500,000
7,500,000
(11,085,025)
$18,585,025
(4,302,246)
18,683,353
1,246,977
19,930,330
12,122,933
$7,807,397
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
OF UNITED STATES OF AMERICA
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted accounting
principles of United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Reclassification
In the accompanying financial statements, certain 2015 figures were reclassified to conform
to the 2016 presentation.
Cash and cash equivalents
For purposes of the statements of cash flows the Credit Union considers all highly liquid
financial instruments with original maturities of three months or less as cash equivalents.
Investments
Management determine the classification of investments in debt securities as: 1) Trading
securities, 2) Available for sale and 3) Held to Maturity.
Held to maturity Securities, for which management has the intent and the ability to hold to
maturity. These investments are reported at cost, adjusted for amortization of premiums and
accretion of discounts, which are recognized as adjustments to interest income.
Available for sale investment securities, that could be sold at any time in response to
economic and strategic factors. These securities are reported at fair market value.
Unrealized gains and losses on securities available for sale are recognized as a direct increase
or decrease in other comprehensive income.
Investments are made in accordance with the credit union's policies, which incorporate the
regulations of COSSEC; hence, they are principally in low risk instruments. However, since
2009 Puerto Rico Credit Unions are authorized to invest in Puerto Rico bonds, even though,
those bonds are classified as risky. Gains or losses on disposition are based on the net
proceeds and the adjusted carrying amount of the securities sold, using the specific
identification method. Premiums and discounts are amortized or accreted using the straight
line or effective interest method. Interest income is recorded on an accrual basis.
Page 19
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
The Credit Union adopted the accounting pronouncements which provides a framework for
measuring fair value, and further defines fair value as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date.
The Credit Union determines the fair values of its financial instruments based on the fair
value established by the accounting principles, which requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring fair value.
This framework describes three levels of inputs that may be used to measure fair value.
Level 1 asset and liability fair values are based on quoted prices in active markets for
identical assets and liabilities.
Level 2 asset and liability fair values are based on observable inputs that include: quoted
market prices for similar assets or liabilities; quoted market prices that are not in an active
market; or other inputs that are observable in the market and can be corroborated by
observable market data for substantially the full term of the assets or liabilities.
Level 3 assets and liabilities are financial instruments whose value is calculated by the use of
pricing models and/or discounted cash flow methodologies, as well as financial instruments
for which the determination of fair value requires significant management judgment or
estimation.
Foreclosed assets
Properties foreclosed due to delinquency are recorded based on the lower of loan value or the
property’s market value. The Cooperative classifies the market value of repossessed assets
by using level 3 already mentioned according to accounting pronouncements. Total net value
of foreclosed assets amounted to $4,789,006 as of June 30, 2016.
Other Cooperative entities
Investments in other cooperative entities are not negotiable and are recorded at cost reduced
by any permanent impairment, if it does apply. Dividends received are recorded as an
increase in asset value.
Loans Receivable and Allowance for Loan Losses
Loans receivable are stated at unpaid principal balances, less an allowance for loan losses.
Interest on loans is recognized over the term of the loan and is calculated using the simple
interest method on principal amounts outstanding. Except for delinquent loans over ninety
days or more, where no calculations are made.
Page 20
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
The Allowance for Loan Losses is increased by charges to income and decreased by charge
offs (net of recoveries). Management's periodic evaluation of the adequacy of the allowance
is based on the Credit Union's past loan-loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay, estimated values
of any underlying collateral and current economic conditions.
In addition, the Credit Union’s regulator, as an integral part of its examination process,
periodically reviews the Credit Union’s allowance for losses on loans. The regulator may
require the Credit Union to recognize additions to the allowance based on their judgments of
information available to them at the time of their examination. State Credit Unions must
follow accounting practices regarding the allowance based on guidance provided through a
bylaw known as “Reglamento 8665” and by following “COSSEC” letter to Credit Unions”
#2012-04 and #2012-06.
Accrual of interest on a loan is discontinued when management believes, after considering
economics, business conditions, and collection efforts that the borrower's financial condition
is such that collection of interest is doubtful.
Uncollectible interest previously accrued is charged off or an allowance is established by
means of a charge to interest income. Income is subsequently recognized only to the extent
cash payments are received until in management's judgment, the borrower's ability to make
periodic interest and principal payments is back to normal, in which case the loan is returned
to accrual status.
Financial statement disclosures related to the credit quality of loan receivables
The Credit Union has established policies to evaluate application for loans using, among other
information, credit scores available through service providers and any other information in
order to receive enough information regarding the credit quality of the loan portfolio. In case
the Credit Union provides Commercial Loans, the following aspects must be taken into
consideration to evaluate associated risks within the loan portfolio:
Without exception – Debtor has adequate capital and ability to repay the loan, by following
the initial agreement signed and as part of the normal course of businesses.
Monitoring - The loan has proper collateral and is being paid according to agreement, but
with the probability to become delinquent. The debtor's financial position is becoming risky
and cash flow is beginning to become affected. Also, the Cooperative has unavailable recent
financial information and industry risks. These circumstances may cause possible future
default on payments.
Page 21
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
Substandard - The loan does not have adequate guarantees due to the negative effects on
the market value of properties that serve as collateral and low profitability. The member has
a weak financial condition which affects loan repayment. There is a high probability that the
Credit Union may not receive total agreed payments and impairment must be recognized on
these loan receivables. Also, no accrued interest will be recognized and payments received
will be charged directly to loan principal.
Doubtful – The loan has the same characteristics as the ones presented in the “Substandard”
category. In addition, the collectability is highly unlikely and the possibility of loss is
extremely high. At this level, there may be some specific conditions that may enhance the
likelihood of repayment of the loan. These conditions include an additional capital
contribution, new collateral, and refinancing or liquidation proceedings. The loan has not been
lost until assessing the effect of the specific conditions listed above. Also, no accrued interest
will be recognized and payments received will be charged directly to loan principal.
Property and Equipment
Property and Equipment are recorded at cost or in the case of assets under capital leases at
the present value of future minimum lease payments.
The cost of property and equipment is depreciated following the straight-line method. This
method distributes ratably the asset cost over its estimated useful live. Maintenance and
repairs are charged to operations and betterments and/or renewals are capitalized.
When property and equipment are sold or otherwise disposed of, the asset account and
related accumulated depreciation account are relieved, and any gain or loss is included in
operations. Art collections are capitalized at their cost at the date of purchase or, if the items
were contributed, at their fair or appraised value at the contribution date.
Impairment of Long-lived Assets
According to require accounting pronouncements the Credit Union periodically reviews longlived assets for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. No indications of impairment are
evident as a result of such reviews as of June 30, 2016.
Members’ Savings
The savings’ rates are set by the Trustee based on an evaluation of current and future
market conditions and may vary among 1.00% and 3.10%. The Cooperative process
withdrawals on any given day following policies approved. Also, Christmas and Summer Club
are due on November and May respectively, with an interest rate of 3.10%.
Page 22
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
Members’ Shares
The internal bylaws require members to buy at least 12 shares with $10 par value every year
in order to maintain current status as members of the Credit Union. The Cooperative does
not issue share certificates, but maintain a detail of transactions performed by every
member. Members' share and savings accounts are subordinated to all other liabilities of the
Credit Union upon liquidation.
Revenue and Expense Recognition
Revenue is generally recognized when earned and expenses are recognized when incurred.
Funds received in advance are deferred and recognized as income in the year are earned.
Comprehensive income
Management adopted the accounting pronouncement which requires the disclosure of
comprehensive income elements. This information includes the net loss and other changes in
members’ equity that comes from other sources. The comprehensive income is as follows:
"COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN"
STATEMENTS OF COMPREHENSIVE INCOME
YEAR ENDED ON JUNE 30
2016
Net Loss
$7,807,397
Other comprehensive:
Unrealized loss on investments classified as held to maturity impaired at
year end (based on ASC 320-10-45-9)
Total
(21,365,022)
($13,557,625)
Page 23
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
Note 2:
Cash and cash equivalents.
Cash and cash equivalents are disclosed as follows:
Description
Change fund
Checking and savings accounts
Money market accounts
Certificates of deposits with maturities with an
original maturity of three months or less
Total cash and cash equivalents
2016
2015
$1,100,390
11,501,405
576,082
$1,106,440
44,825,753
880,297
23,099,000
12,275,000
$36,276,877
$59,087,490
Note 3:
Certificates of Deposits with due dates over three months.
The certificates of deposits consist of investments in local banks, with due dates over three
months. The average yield is 1.65%. The due dates of these certificates are as follows:
Description
One year or less
More than one year and less than three
More than three years and less than five
Total certificates
2016
2015
$41,660,129
26,001,165
5,000,000
$60,610,165
16,200,129
11,000,000
$72,661,294
$87,810,294
Note 4:
Investments
The application of Law 220 exposes the performance of Puerto Rico bonds at its amortized
cost. The amount situated with losses under special amortization represents the impairment
that is amortized up to a maximum of fifteen years. The average yield of all negotiable
instruments is 5.38%. The amortized cost and estimated market values of investments in
debt securities, classified as Held to Maturity, at June 30, 2016 and 2015 are as follows:
June 30, 2016
Negotiable investments classified
as Held to Maturity
Investments in Bonds issued by
Puerto Rico and/or its agencies
Amortized
Cost
$57,095,000
Page 24
Realized
Loss (Impaired)
($11,085,025)
Unrealized
Loss
($21,365,022)
Market
Value
$24,644,953
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
June 30, 2016
Negotiable investments classified
as Held to Maturity
Amortized
Cost
Investments in Bonds issued by
Municipalities located in United States
$117,259,000
$3,278,372
($18,581)
$120,518,791
$117,259,000
$3,278,372
($18,581)
$120,518,791
Totals
Unrealized
Gains
Unrealized
Loss
Market
Value
June 30, 2015
Negotiable investments classified
as Held to Maturity
Amortized
Cost
Unrealized
Gains
Unrealized
Loss
Market
Value
Investments in Bonds issued by
Puerto Rico and/or its agencies
$65,240,000
-
($27,857,368)
$37,382,632
Investments in Bonds issued by
Municipalities located in United States
137,594,839
-
(1,603,238)
135,991,601
$202,834,839
-
($29,460,606)
$173,374,233
Totals
Expected maturities will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without penalties. The amortized cost and the
market value of all investment securities as of June 30, 2016 and 2015 by contractual
maturities are shown below.
June 30, 2016
Special Invesments classified by Law 220
One year or less
More than one year and less than five
More than five, less than ten
More than ten years
Totals
Page 25
Amortized
Cost
Market
Value
$7,000,000
6,000,000
44,095,000
$2,677,400
1,740,000
22,904,953
$57,095,000
$24,644,953
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
June 30, 2016
Negotiable investments classified
as Held to Maturity
Amortized
Cost
Five years or less
More than five, less than ten
More than ten years
Totals
June 30, 2015
Market
Value
Amortized
Cost
Market
Value
$21,090,000
44,147,510
52,021,490
$25,350,000
44,903,928
50,264,863
$23,395,000
66,465,000
112,974,839
$16,561,432
66,399,589
90,413,212
$117,259,000
$120,518,791
$202,834,839
$173,374,233
Note 5:
Loans Receivable
The composition of loans to members is as follows:
Description
2016
2015
$3,144,099
930,971
$4,075,070
$3,692,513
972,077
$4,664,590
Consumer loans
Personal
Emergency
Credit cards
Insurance and appliances loans
Guaranteed with members' deposits
Mortgage
Vehicles
Total consumer loans
$90,687,939
12,097,979
3,652,543
43,482
10,851,136
134,019,500
18,136,701
$269,489,280
$93,229,131
12,471,056
3,812,672
80,738
10,108,909
133,975,016
9,922,442
$263,599,964
Total loans
Loan origination costs capitalized
$273,564,350
(7,667,298)
$268,264,554
(7,830,000)
Net loans
$265,897,052
$260,434,554
Commercial loans
Companies
Not for profit organizations
Total commercial loans
Page 26
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
Methodology used for compute the Provision for Possible Losses on Consumer
Loans
For consumer loans, the estimated percentage method used the guidelines provided in the
Regulation No. 8665 (“Regulation on Accounting Standards for Credit Unions”). Furthermore,
risk factors, as experience and management factors were compared.
A summary of the activity in the Allowance for loan losses is as follows:
June 30, 2016
Consumer
Commercial
Total
Balance at beginning of year
Bad Debt Expense
Write – off Loans
Recoveries
$7,317,847
4,302,246
(4,902,183)
437,235
$512,153
-
$7,830,000
4,302,246
(4,902,183)
437,235
Balance at year end
$7,155,145
$512,153
$7,667,298
Consumer
Commercial
Total
Balance at beginning of year
Bad Debt Expense
Write – off Loans
Recoveries
$6,128,633
4,506,485
(3,928,868)
611,597
$512,153
-
$6,640,786
4,506,485
(3,928,868)
611,597
Balance at year end
$7,317,847
$512,153
$7,830,000
June 30, 2015
Characteristics of Loan Portfolio credit quality, which includes Commercial and
Consumer Loans.
The Credit Union has different types of consumer loans with different credit risks.
Delinquency, scoring and collateral values are indicators of the credit quality taken into
consideration by management when the allowance for doubtful accounts is recorded as an
estimate for probable losses. The main factor taken into consideration is delinquency among
loan types and the percentage of probable losses following the bylaw known as “Reglamento
8665”. The percentage method applied, provides an estimate based on aged receivables.
The following table summarizes Commercial loans according to their risks and classification:
Page 27
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
Nota 5 CC
June 30, 2016
Without
exception
Monitoring
Substandard
Doubtful
Total
Companies
Not for profit organizations
$3,144,099
930,971
-
-
-
$3,144,099
930,971
Totals
$4,075,070
-
-
-
$4,075,070
June 30, 2015
Without
exception
Monitoring
Substandard
Doubtful
Total
Companies
Not for profit organizations
$3,692,513
972,077
-
-
-
$3,692,513
972,077
Totals
$4,664,590
-
-
-
$4,664,590
The following table summarizes the aged receivable on Commercial and Consumer Loans as
of June 30, 2016:
Age Analysis of Loan to Members Receivables by Category
Nota 5 CC
June 30, 2016
Current or
0-60
61-180
181-365
365 or more
90+ &
NonTotal accumulating
Companies
Not for profit organizations
$3,144,099
930,971
-
-
-
$3,144,099
930,971
-
Total comercial loans
$4,075,070
-
-
-
$4,075,070
-
Personal and others
Credit cards
Mortgage
Vehicles
$107,165,652
3,318,910
129,617,976
18,096,866
$3,599,225
44,022
1,800,099
26,540
$1,662,918
119,375
2,054,929
13,295
$1,252,741
170,236
546,496
-
$113,680,536
3,652,543
134,019,500
18,136,701
$4,715,272
311,622
3,501,475
26,565
Total consumer loans
$258,199,404
$5,469,886
$3,850,517
$1,969,473 $269,489,280
$8,554,933
Total loans
$262,274,474
$5,469,886
$3,850,517
$1,969,473 $273,564,350
$8,554,933
Page 28
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
The following table summarizes the aged receivable on Commercial and Consumer Loans as
of June 30, 2015:
Age Analysis of Loan to Members Receivables by Category
June 30, 2015
Current or
0-60
61-180
181-365
365 or more
90+ &
NonTotal accumulating
Companies
Not for profit organizations
$3,692,513
972,077
-
-
-
$3,692,513
972,077
-
Total comercial loans
$4,664,590
-
-
-
$4,664,590
-
Personal and others
Credit cards
Mortgage
Vehicles
$108,475,800
3,550,584
129,836,049
9,882,856
$1,327,040
63,889
1,688,913
-
$2,862,344
70,798
1,101,913
-
$3,224,650 $115,889,834
127,401
3,812,672
1,348,141 133,975,016
39,586
9,922,442
$7,025,711
262,088
3,914,704
39,586
Total consumer loans
$251,745,289
$3,079,842
$4,035,055
$4,739,778 $263,599,964
$11,242,089
Total loans
$256,409,879
$3,079,842
$4,035,055
$4,739,778 $268,264,554
$11,242,089
The following table summarizes the loan segregation based on scoring numbers per loan type
as of June 30, 2016 and 2015:
Page 29
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
Otros
TOTALES
$826,216
-
-
$3,144,099
930,971
$789,512
$826,216
-
$4,075,070
$12,823,700
15,812,361
1,815,385
412,024
$21,547,795
26,092,954
3,135,479
692,328
$59,465,848
68,407,978
7,369,914
1,910,631
$3,953,084 $113,680,536
544,560 134,019,500
18,136,701
2,663,742
3,652,543
127,012
$42,714,484
$30,863,470
$51,468,556 $137,154,371
$7,288,398 $269,489,280
$44,774,722
$31,262,574
$52,258,068 $137,980,587
$7,288,398 $273,564,350
<600
601-650
651-700
701+
$9,058,256
11,713,227
346,350
323,899
$9,107,788
11,559,116
651,396
248,540
$17,426,457
18,295,864
1,291,614
563,531
$43,646,742
61,810,133
3,269,892
1,307,173
<600
601-650
651-700
701+
Companies
Not for profit organizations
$1,129,267
930,971
$399,104
-
$789,512
-
Total comercial loans
$2,060,238
$399,104
Personal and others
Mortgage
Vehicles
Credit cards
$15,890,109
23,161,647
3,152,181
510,547
Total consumer loans
Total loans
June 30, 2016
June 30, 2015
Personal and others
Mortgage
Vehicles
Credit cards
Total loans
$21,441,732
Otros
TOTALES
$36,650,591 $115,889,834
30,596,676 133,975,016
4,363,190
9,922,442
1,369,529
3,812,672
$21,566,840 $37,577,466 $110,033,940 $72,979,986 $263,599,964
The following information presents a detail of loan to value to mortgage credit:
Balance of Loan to value
June 30, 2016
First Mortgage
0-80%
81-90%
91-100%
>100%
$96,472,340
$31,236,850
$2,504,700
$3,805,610
Page 30
Total
$134,019,500
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
June 30, 2015
First Mortgage
0-80%
80-90%
90-100%
>100%
$94,854,133
$28,849,089
$1,765,215
$8,506,579
Total
$133,975,016
The following table includes the recorded investment and unpaid principal balances for
impaired loans receivables with associated allowance amount. The Credit Union determined
the specific allowance based on the associated risks and the percentage method applied.
End of the year 2016
Description
Personal and others
Credit cards
Mortgages
Vehicles
Total loans
Principal
Balance unpaid
End of the year 2015
Specific
Principal
Allowance Balance unpaid
Specific
Allowance
$6,514,884
333,633
4,401,524
39,835
$4,158,142
238,730
766,428
9,838
$7,414,034
262,088
4,138,967
39,586
$4,225,045
130,680
758,269
39,393
$11,289,876
$5,173,137
$11,854,675
$5,153,387
Restructured loans
In situations where, for economic or legal reasons related to a member's financial difficulties,
the Credit Union grants a concession for other than an insignificant period of time to the
member that the Credit Union would not otherwise consider, the related loan is classified as a
troubled debt restructuring (TDR). The Credit Union strives to identify members in financial
difficulty early and work with them to modify to more affordable terms before their loan
reaches nonaccrual status. In cases where the Credit Union grants to the member new terms
that provide for a reduction of either interest or principal (on non-collateral dependent loans)
measures any impairment based on the present value of expected future cash flows at the
loan effective interest rate.
The following information presents the restructured loans by category and by concessions
provided:
Page 31
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
Restructured Loans
Delinquent Restructured Loans
Loan Amount
Principal
Balance
Specific
allowance
Personal and others
Mortgages
336
44
$5,383,060
6,744,211
Total consumer loans
380
June 30, 2016
Loan Amount
Principal
Balance
Specific
allowance
$865,000
700,000
71
8
$1,151,937
971,884
$786,000
243,000
$12,127,271 $1,565,000
79
$2,123,821
$1,029,000
Restructured Loans
Delinquent Restructured Loans
Loan Amount
Principal
Balance
Specific
allowance
Personal and others
Mortgages
242
47
$4,093,432
6,824,996
Total consumer loans
289
June 30, 2015
Loan Amount
Principal
Balance
Specific
allowance
$456,717
1,689,708
32
4
$600,530
738,500
$310,204
149,624
$10,918,428 $2,146,425
36
$1,339,030
$459,828
CONCESSIONS PROVIDED AMONG RESTRUCTURED LOANS
June 30, 2016
Interest Rate
Due date
Principal
Reduction
Others
Total
Personal and others
Mortgages
-
$5,383,060
6,744,211
-
-
$5,383,060
6,744,211
Total
-
$12,127,271
-
-
$12,127,271
Page 32
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
CONCESSIONS PROVIDED AMONG RESTRUCTURED LOANS
June 30, 2015
Interest Rate
Due date
Principal
Reduction
Others
Total
Personal and others
Mortgages
-
$4,093,432
6,824,996
-
-
$4,093,432
6,824,996
Total
-
$10,918,428
-
-
$10,918,428
Note 6:
Interest and other accounts receivable
This item consists of the following:
Description
Accrued interest on loans
Accrued interest on investments
Other account receivables
Interest and other accounts receivable
2016
2015
$1,014,345
1,470,961
34,431
$1,134,230
1,739,630
199,454
$2,519,737
$3,073,314
Note 7:
Property and Equipment
This item consists of the following:
Description
2016
2015
Building and Improvements
Furniture and fixtures
Vehicles
Computer Programs
Total
Less accumulated depreciation
$7,100,214
1,099,032
68,182
2,830,962
11,098,390
(4,679,347)
$6,382,046
875,586
68,182
2,371,558
9,697,372
(4,208,885)
Land
Property and Equipment net
175,000
$6,594,043
175,000
$5,663,487
Page 33
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
Note 8:
Other Cooperative entities
This item consists of the following:
Description
Investment in "Banco Cooperativo"
"Cooperativa de Seguros Múltiples"
"Cooperativa de Seguros de Vida (COSVI)"
"Fondo de Inversión y Desarrollo Cooperativo"
"Depósito de seguro sobre acciones (COSSEC)"
"Liga de Cooperativas"
"Federación de Cooperativas"
"Servicios Fúnebres" and Others
"Circuito Cooperativo e Integracoop"
"Usicoop"
Total other Cooperative entities
2016
2015
$672,473
109,770
851,250
1,285,089
6,313,055
1,011
1,000
5,050
1,000
75,000
$638,797
105,043
851,250
1,285,089
6,140,507
1,011
1,000
5,050
6,000
75,000
$9,314,698
$9,108,747
2016
2015
$127,598
4,789,006
7,515
42,000
28,220
41,456
$135,729
5,571,402
10,000
12,000
23,347
40,456
$5,035,795
$5,792,934
Note 9:
Other Assets
This item consists of the following:
Description
Prepaid insurance
Foreclosed assets net
Other prepaid assets
Retirement plan non-qualified
Materials
Bonds and deposits
Total Other assets
Note 10:
Members’ deposits
At June 30, 2016 schedule maturities of regular deposits, checking accounts and certificates
of deposits are:
Page 34
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
Description
Members' deposits
Nonmembers' deposits
Christmas and summer club
Checking accounts
Certificate of deposits
Average
interest rate
1.25%
0.50%
1.50%
0.00%
1.28%
Totals
1 year or less
1 to 3 years
more than
three years
Total
$137,000,250
17,288,467
3,505,685
1,985,057
143,535,321
5,642,239
$137,000,250
17,288,467
3,505,685
1,985,057
502,726 149,680,286
$303,314,780
$5,642,239
$502,726 $309,459,745
Note 11:
Accounts payable and accrued expenses
This item consists of the following:
Description
Accounts payable
Outstanding checks
Income tax withholdings
Money order payable
Insurance payable
Escrow accounts
Dividends payable
Other accounts payable
Vacations, sickness and bonuses
Accrued interest payable
Other accrued expenses
Accounts payable and accrued expenses
Note 12:
Other Income
This item consists of the following:
Page 35
2016
2015
$255,028
519,196
5,062
14,590
64,840
683,473
228,729
172,027
350,344
226,168
31,645
$326,012
204,589
10,585
37,494
14,875
602,749
244,743
136,276
278,135
212,997
47,703
$2,551,102
$2,116,158
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
Description
Service Fees and Late charges
Service charges
Commissions
Sponsorship
Dividends
Electronic transactions charges
Sale of assets
Other income
Total other income
Note 13:
2016
2015
$217,361
39,955
351,157
47,714
210,010
205,398
73,120
102,262
$276,762
20,525
334,703
49,169
217,178
138,541
114,993
60,142
$1,246,977
$1,212,013
Compensation and Fringe Benefits
Pension and Health care plan
The Cooperative has a defined contribution pension plan for all its employees. It is the
responsibility of the trustee to keep the information as to the benefits accumulated for each
employee. Also, the entity offers, as a fringe benefit, a health plan for qualified employees, it
provides 80% of the premium costs for employees covered by the family plan and 100% of
the premium costs for employees covered by the individual plan.
The detail of salaries and fringe benefits is disclosed as follows:
Description
Salaries and compensation
Vacations, sickness and bonuses
Social security and other payroll benefits
Pension plan
Health plan
Uniforms
Allowances and reimbursements
Insurance
Compensation and fringe benefits
Page 36
2016
2015
$2,632,924
366,242
264,486
293,450
293,974
3,353
35,441
47,445
$2,380,252
404,260
251,104
283,745
282,103
14,192
37,453
44,414
$3,937,315
$3,697,523
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
Note 14:
Other administrative expenses
This item consists of the following:
Description
Bank charges
MasterCard expenses
Debit cards charges
Directors
Communications
Utilities
Rent
Donations
Postage
Affiliation fees
Sales and Use tax
Losses due to foreclosed assets
Property taxes
Other additional expenses
Total other administrative expenses
Note 15:
2016
2015
$115,284
149,405
161,377
88,429
140,205
136,108
169,731
32,848
215,132
28,002
127,662
1,232,192
17,474
22,362
$126,075
139,808
88,137
78,717
157,809
235,093
73,133
31,498
188,415
25,045
52,205
731,212
100,463
23,650
$2,636,211
$2,051,260
Commitments and Contingencies
Purchased mortgages
The Cooperative purchased loan mortgages from another Credit Union. The agreement
includes that the other Credit Union will collect and administer all related payments and will
receive a fee for servicing provided to the Cooperative. These loans are with recourse and
the agreement requires that delinquent loans over 90 days or more will be replaced by others
with similar characteristics and / or repurchased. The balance of these loans as of June 30,
2016 is $1,475,530.
Vehicle Loans Purchased
The Cooperative purchased vehicle loans from two other Credit Unions. These Credit Unions
will collect and administer all related payments and will receive a fee for services provided.
These loans are without recourse up to 30 months, provided that delinquent loans over 90
days or more will be replaced by others with similar characteristics and / or repurchased.
After the thirty (30) month period, the Cooperative will assume the full debt risk. The
balance of these loans as of June 30, 2016 is $2,497,271.
Page 37
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
Lease
During March 2015 the Cooperative signed two operating lease contracts to use a facility (as
a branch) located in Mayagüez town. The contract requires a monthly payment of $5,558 for
one lease and $12,402 for the other lease. The minimum payments for the next five years
are disclosed as follows:
Year
2017
2018
2019
2020
2021
Total
Amount
$215,520
$222,520
$222,520
$222,520
$222,520
$1,105,600
Lines of Credit - MasterCard
The Credit Union is a party to financial instruments with off-balance-sheet risk in the normal
course of business to meet the financing needs of its members and to reduce its own
exposure to fluctuations in interest rates. These financial instruments include commitments
to extend credit. These instruments involve, to varying degrees, elements of credit and
interest-rate risk in excess of the amount recognized in the statements of financial condition.
The Credit Union’s exposure to credit loss in the event of nonperformance by the other party
to the financial instrument for commitments to extend credit is represented by the
contractual amount of those instruments.
Commitments to extend credit are agreements to lend to a member as long as there is no
violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses. Since many of the commitments may expire
without being fully drawn upon, the total commitment amounts do not necessarily represent
future cash requirements.
As of June 30, 2016 the Cooperative had outstanding commitments for unused lines of
credits and unused MasterCard for a total of $6,688,968, that are not reflected in the
accompanying financial statements. The Credit Union evaluates each member credit union’s
creditworthiness on a case-by-case basis. The amount of collateral obtained, if any, is based
on management’s credit evaluation of the member.
Litigation
In the normal course of businesses, the Credit Union is involved in litigation to recover
delinquent loans.
A member filed a lawsuit against the Credit Union. However, the Cooperative prevailed and if
any probable future adverse outcome occurs, it will not be material for the financial
statements.
Page 38
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
Concentration of Risk
Deposits
The Federal Deposit Insurance Corporation (FDIC) and the Public Corporation for the
Supervision and Insurance of Puerto Rico Credit Unions (known as “COSSEC” its Spanish
acronym) provides an insurance up to two hundred fifty thousand ($250,000) for deposits
made in local and United States banks and state credit unions respectively. The amount of
Deposits in excess of the insured limits was $104,031,099 and $140,783,685 as of June 30,
2016 and 2015, respectively.
The Credit Union has nonfederal or state insured deposits in “Banco Cooperativo”. These
deposits are necessary for members’ “MasterCard” transactions and any other operational
needs. The total as of June 30, 2016 was $3,114,895.
Also, the Credit Union has unsecured investments in “Cooperativa de Seguros Múltiples” and
“COSVI”, which amounted to $961,020 and an unsecure investment in “Fidecoop” for a total
of $1,285,089.
Negotiable investments
During February 2014 and subsequently the credit rating agencies downgraded Puerto Rico
bonds, its agencies and Public Corporations to high risk levels. As of June 30, 2016 the
Credit Union has $57,095,000 invested in Puerto Rico bonds (see note 4).
Management hired an expert to evaluate the Puerto Rico bonds portfolio and to determine a
probable impairment by using its best estimate of the present value of cash flows expected to
be collected from these debt securities. After the expert outlined the factors that should be
considered when determining whether a security is other than temporarily impaired, the final
conclusion is that an impairment amounting to $11,085,025 must be recognized and included
as a loss during the current fiscal period ended on June 30, 2016. The effect of this
impairment is significant to the financial statements. However, management expects to see
in the future corrective measures applied by the Puerto Rico and/or United States of America
government to mitigate future losses. If debt restructure takes place, the amount recognized
as impairment might be different in the future and estimates might have to be adjusted in
the financial statements. The members’ equity remains positive and this loss does not affect
the Credit Union’s financial stability.
Note 16:
Related Party Transactions
Employees of the Credit Union have outstanding loans and deposits at the Credit Union. All
loans were made at the same rates and terms as those available to all other members of the
Credit Union. Deposit accounts earned interest at the same rates provided to all other
members of the Credit Union.
Page 39
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
Note 17:
Agreements
The Cooperative has an agreement with “Banco Cooperativo” of Puerto Rico to serve as an
outsourcing company in relation to members’ checking accounts. As part of this agreement,
the Credit Union assumes all associated risks, except when “Banco Cooperativo” employees
do not perform their duties within established policies and procedures.
All incurred expenses are being paid by the Credit Union, except “Banco Cooperativo”
employees’ payroll. The Cooperative must maintain an active bank account to respond for all
related checking account transactions. This account should always have funds and no
overdrafts are allowed.
The Cooperative has an agreement with “Banco Popular” of Puerto Rico and the New York
Automated Clearinghouse (NYACH) to process all electronic transfers among members. All
incurred expenses are being paid by the Credit Union, except “Banco Popular” employees’
payroll.
Note 18:
Subsequent events
The Credit Union adopted the accounting principles related to subsequent events. The
accounting principles establish disclosure of events that have a significant impact on the
financial statements after the close of the fiscal year prior to the issuance of audited financial
statements.
In accordance with the required accounting principles, the Cooperative evaluated its
subsequent events until the issuance of these financial statements. Cooperative management
understands that no material event occurred subsequent to June 30, 2016 that required to be
disclosed in the financial statements.
Note 19:
Fair Value of Financial Statements
The Credit Union adopted the accounting principles related to “Disclosures about Fair Value of
Financial Instruments” which requires disclosure of fair value information about financial
instruments, whether or not recognized in the statement of financial condition.
The fair value of a financial instrument is the current amount that would be exchanged
between willing parties, other than in a forced liquidation. Fair value is best determined
based upon quoted market prices. However, in many instances, there are no quoted market
prices for the Credit Union’s various financial instruments. In cases where quoted market
prices are not available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows.
Page 40
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
In that regard, the derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate settlement of
the instruments. This Statement excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Credit Union. The following methods
and assumptions were used to estimate the fair value of each class of financial instrument:
Cash and cash equivalents: The carrying amounts reported in the statement of
financial condition for cash and cash equivalents approximate those assets’ fair
values.
Investment securities: Fair values of securities are usually based on quoted market
prices. If a quoted market price is not available, fair value is estimated using quoted
market prices for similar securities.
Loans to members: The fair value of fixed-rate loans is estimated by discounting the
future cash flows for each loan category using the current rates and estimated future
rates, which similar loans would be made to borrowers with similar credit ratings and
for the same remaining maturities. If information is unavailable, impairment is
calculated by using estimates of recoverability at year end.
Accrued Interest and other account receivables: The carrying amounts of accrued
interest approximate the fair values because of short-term duration of these financial
instruments.
Members’ deposits: The fair value of checking accounts, regular savings and money
market accounts is the amount payable on demand at the reporting date. The
carrying amounts reported approximate fair value.
The estimated fair values of the Credit Union’s financial instruments are as follows:
Market Value
June 30, 2016
Special investments
Negotiable investments classified as
Held to Maturity
Foreclosed vehicles and properties
Market Value
Level 1
$57,095,000
-
$24,644,953
-
$24,644,953
$117,259,000
-
$120,518,791
-
$120,518,791
$4,789,006
-
Page 41
Level 2
-
Level 3
$4,789,006
Total
$4,789,006
“COOPERATIVA DE AHORRO Y CRÉDITO DE RINCÓN”
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2016 AND 2015
June 30, 2016
Book Value
Financial Instruments
Financial Assets:
Cash and cash equivalents
Special investments
Negotiable investments held to maturity
Member loans
Accrued interest and account receivables
Total financial assets
Financial liabilities:
Deposits on demand
Accrued interest payable
Total financial liabilities
Unrecognized financial instruments:
Unused lines of credit
Page 42
June 30, 2016
Market Value
$36,276,877
57,095,000
117,259,000
273,564,350
2,519,737
$36,276,877
24,644,953
120,518,791
265,897,052
2,519,737
$486,714,964
$449,857,410
$309,459,745
226,168
$309,459,745
226,168
$309,685,913
$309,685,913
$6,688,968
$6,688,968